Palo Alto Weekly

City weighs the return of the controversial 'PC' zone

After years of meager housing production, City Council to consider new zoning ideas

by Gennady Sheyner

Stuck in a housing drought, Palo Alto leaders are preparing to consider more drastic actions to encourage residential construction, including reviving the contentious "planning community" zone, which allows developers to negotiate for exemptions to regulations on height, density and parking in exchange for providing "public benefits."

The City Council suspended its use of the zoning tool in 2013, after voters overturned in a referendum the city's last "planned community" (PC) project, which included 60 apartments for low-income seniors and 12 single-family homes on Maybell Avenue.

The tool has also been used by developers to win approvals for large commercial projects, including the redevelopment of Edgewood Plaza, the four-story office building at 101 Lytton Ave., and the College Terrace Centre on El Camino Real and College Avenue. In nearly every case, the approval process was followed by uproar from residents when the promised public benefits were either insufficient or missing altogether.

But while the PC zone became politically toxic, city leaders also see it as one of the few mechanisms that they can use to meet their goal of producing more than 300 housing units per year. As such, it is one of the proposals that Planning Director Jonathan Lait plans to present to the council as part of his department's housing work plan for 2020.

A new report from the Department of Planning and Development Services acknowledges that "planned community zoning has received significant criticism for a variety of reasons." At the same time, the zoning process has been used over the past 20 years in the construction of about 1,300 (or 39%) of the new 3,300 housing units, the document states. Another tool, the development agreement, which similarly allows the city and the developer to negotiate on a project that exceeds zoning laws, accounted for 25% of the entitled projects. These two tools were used to produce 2,120 housing units over the two-decade period.

As proposed by the planning staff, the PC zone could be brought back in a modified form — "one that eliminates the need for a negotiated public benefit," the report states.

The push for housing is expected to dominate the City Council's agenda this year, thanks to both internal and external pressures. Newly elected Mayor Adrian Fine has consistently called for the city to ramp up its housing production by relaxing zoning standards and allowing taller and denser buildings, particularly near transit. On Jan. 6, just after he was elected mayor, Fine indicated that housing will be one of his priorities this year, along with transportation and economic vitality.

Fine argued that the city's annual production of housing — between 50 and 60 units — is not good enough. The numbers, however, don't illustrate what the housing problem is really about — people.

"It's not housing units and development. It's new neighbors and new homes. ... Whether it's seniors who need a supportive community, Stanford students who want to put down roots here, young families who want to send kids to our great schools — we need to figure out what Palo Alto looks like in five, 10, 15, 20, 50 years. And I think that's a challenge for all of us," Fine said.

Senate Bill 50, which Fine supports, may be the state stick that prods local action. Under recent amendments to the bill, cities will have two years to design zoning policies that would facilitate the type of housing production envisioned by SB 50. If they fail to do so, they would be forced to comply with SB 50's provisions, which relax height, density and parking restrictions near busy transit corridors and hubs and in jobs-rich areas.

In areas near transit, housing developments would be granted height limits of 45 feet, or about four stories, including in single-family neighborhoods. In areas deemed "jobs-rich," projects would have no density limits and parking standards would not exceed 0.5 spaces per unit.

To advance, the bill must win approval from the state Senate by the end of January.

Slowing to a trickle

The bill could have significant ramifications for communities like Palo Alto, which has a jobs-housing imbalance of 3-to-1 and where housing production has slowed to a trickle in recent years. The city's Comprehensive Plan, which the council approved in 2017, calls for producing between 3,545 and 4,420 new housing units between 2015 and 2030, an average of about 343 units per year for the next decade. This is more than twice as many units as the city has issued permits for in 2018 and 2019 combined.

Affordable housing has been a particularly rare commodity in Palo Alto. In 2015, the city approved plans for 43 housing units for residents at "very low income" levels, about 6% of its regional allocation of 648 units. Since then, the tally has been zero.

The council's 2018 vote to make housing a priority did little to change that trend. In 2018 and 2019 combined, the council has produced zero housing units in the "very low" and "moderate" categories and two units in the "low" category. At the same time, the city permitted 54 units in the "above moderate" category in 2018 and 105 units in 2019.

The city's recent zone changes haven't helped. Since 2018, the council has approved fixes including a Housing Incentive Program that allows builders to claim density bonuses for building residential projects in the downtown area, around California Avenue and along El Camino Real. After receiving no takers, the council voted last September to extend the program to San Antonio Road.

The city did receive a proposal for 100 housing units on San Antonio, which the council will be reviewing in the coming months.

The city's efforts to bring more housing to the city's commercial areas also have not netted results: The few projects that have received approval are now stuck in planning limbo.

The Sobrato Organization, which received the green light in October 2017 for a 50-apartment project at the former site of Mike's Bikes on El Camino Real, has since informed the city that is not moving ahead with development, saying the project no longer pencils out financially. Tim Steele, senior vice president for real estate development at Sobrato, informed city planners in a July 2019 letter that "construction pricing is difficult at this time."

Sobrato has also indicated that it is not interested in building housing at 340 Portage Ave., a longtime location of Fry's Electronics, which closed up shop last month after three decades of operation. The decision dealt a serious blow for the city's plans for the site, which is now at the center of a planning effort known as the "North Ventura Concept Area Plan." The city's Housing Element, which lays out Palo Alto's plans to meet regional housing allocation, calls for 221 housing units at the Fry's site.

With Sobrato reluctant to convert the site to residential use and area residents generally opposed to adding hundreds of units to the site, the property is unlikely to yield much housing, if any, in the foreseeable future.

Given the limitation, Lait proposed in the new report an amortization study of 340 Portage Ave., potentially paving the way for the site's ultimate conversion from commercial to residential use. In 1995, the council gave Fry's Electronics a 20-year extension for its commercial use, after which time the site would revert to residential. But in 2006, the council voted to scrap the 20-year amortization date, effectively allowing commercial uses to remain indefinitely.

The study would consider how long the city should wait before making the zoning change to allow the property owner to recoup its investment in the property. Such a study, Lait added, would require additional analysis in coordination with the City Attorney's Office.

The proposals reflect a harsh reality that Palo Alto and surrounding cities are dealing with: a construction market in which building housing is extremely expensive and a real estate market that continues to favor commercial development over residential. Even as the council members continue to talk about the need for more housing, particularly for low-income residents, the new work plan suggests that the council's target may be out of reach, barring drastic and potentially unpopular actions.

The city's existing efforts on housing "address the need to protect, preserve and produce housing in Palo Alto, which are the cornerstones to a comprehensive housing strategy," the report states.

"However, the projects listed above, while meaningful and important, are not likely to advance the city toward its aspirational goal of 300 or more new housing units a year," it adds.

One proposal that Lait included in the report is the creation of a new "housing overlay" district that would only be available to housing and mixed-use projects and that would allow developers to deviate from development standards such as parking, density and height.

Unlike the planned community process, which involved extensive negotiations over public benefits, the overlay district would explicitly acknowledge that housing — and particularly affordable housing — is in of itself a public benefit that could justify zoning exemptions.

The new planning report argues that "there needs to be sufficient profit incentive for a property owner to build housing that overcomes revenues that can be generated by existing or proposed non-residential uses on property — and sufficient return to attract investors.

"City regulatory processes, fees, inclusionary requirements and zoning regulations play a key role in what it costs to build in Palo Alto," the report states. "Combined with other factors, projects in Palo Alto tend to result in a lower return on investment, which discourages lenders or results in an insufficient profit to offset the risk of development."

TALK ABOUT IT

Should Palo Alto bring back the planned-community zoning, with or without public benefits? Share your opinion on Town Square, the community discussion forum at PaloAltoOnline.com/square.

This story contains 1573 words.

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Posted by Allen Akin
a resident of Professorville
on Jan 22, 2020 at 4:02 pm

It's great to see people acknowledge that profitability differences and real-estate market conditions are responsible for favoring commercial development over housing. It's also encouraging to see people acknowledge that relaxing zoning requirements has been ineffective (which is pretty much what you'd expect if the other factors are more important). It's disappointing to see people proposing to relax zoning requirements again.

If you have time, there are lots of interesting items in the Staff Report (Web Link). I'm looking forward to seeing whether we can encourage more housing development in Stanford Research Park (assignment #17, current status "Not started").

Posted by Anon
a resident of Another Palo Alto neighborhood
on Jan 22, 2020 at 4:17 pm

>> Unlike the "planned community" process, which involved extensive negotiations over "public benefits," the overlay district would explicitly acknowledge that housing – and particularly affordable housing – is in of itself a public benefit that could justify zoning exemptions.

The first step has to be to shut down the ability to upzone or sidestep office space limitations. As long as a property can have a small percentage (e.g. 10%) of its floor space turned into new offices, the "market value" of the property will be determined by the value of the office space. Only by restricting the land to "housing only" will its market value be determined by the housing that can be built there. If we build housing for 10,000 people, and add 20,000 jobs, we lose. You can't just look at adding housing. You have to stop adding jobs.

Posted by No More Developer Giveaways
a resident of Crescent Park
on Jan 22, 2020 at 6:50 pm

Our city has demonstrated zero competency at ensuring so-called "Planned Communities" deliver promised benefits. The city can't even write public benefit agreements that courts will enforce, as recent rulings against the City over College Terrace Centre and Edgewood Plaza sadly demonstrate. Why go further down a dead end?

Here's a far better solution. Don't change zoning. Stop dangling incentives in front of for-profit developer. Instead, buy underdeveloped land and build 100% below-market-rate housing projects using business impact fees and other business taxes. That will create the housing we truly need to help teachers and other residents who can't afford the high rents in new commercial buildings.

This can happen quickly if the City stops wasting time crafting endless giveaways to developers.

Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jan 22, 2020 at 7:12 pm

Since the district is approving so many hotels and since it's hearing from developers that it's not profitable to build residential housing, why not require that each new hotel provide a certain amount of housing units/studio apartments?

Maybe they should also look at having the owner of the old President Hotel provide X number of housing units/studios as partial compensation for the 80 long-term tenants that were ousted.

And by no means should the city allow the developers to promise and then not deliver "community benefits" as they have in the past.

Posted by Long Time Palo Alto Resident
a resident of Old Palo Alto
on Jan 22, 2020 at 11:39 pm

Am I the only one who feels that Palo Alto is getting so much more crowded over recent years? We don’t have enough open spaces in the city anymore. It’s full of tiny houses with people vying for parking spaces everywhere even in residential areas in the less crowded Old Palo Alto. The construction projects around the city exacerbate the problems of space shortage even further. I’m not sure I support more houses being built, drawing more people in, and attracting more jobs (which mean more people and more problems).

If they try to bring back the farce of "planned community" with the non-existent "public benefits" ... seems like this would be ripe for a ballot measure to explicitly outlaw this proven failure of a policy.

Posted by Resident
a resident of another community
on Jan 23, 2020 at 1:30 am

I don't think young families really want to live in high rise apartments or condos.
They want a single family home - a place with a yard, garden, outdoor grill, and community for their kids to play in.
Not on El Camino, Alma, San Antonio, freeway side road, or anywhere near a transit center.
Facebook and Google have lots of vans and buses taking workers to areas with single family homes.
People commute over 4 hours a day to live in single family homes.
They refuse to waste their money on the ridiculously high rents in the bay area.

Posted by Flash
a resident of Downtown North
on Jan 23, 2020 at 8:34 am

> “four-story office building at 101 Alma St.,”

I suspect you are making the same natural mistake that Super Shuttle once did: The former Survey Monkey building with a big sign on Alma Street and Lytton Street saying “101” is actually 101 Lytton. (101 Alma is at Palo Alto Avenue.)

Posted by Zhao Lin
a resident of Charleston Meadows
on Jan 23, 2020 at 9:31 am

The housing market has slowed because many prospective buyers from overseas have realized that their predecessors may have overpaid for their homes over the past several years.

The existing homes in the SF Bay Area + the ability & willingness to pay CASH for desirable residential properties has not been altered to a great extent. As with everything business or financially related, timing is the key.

As far as low-income planned housing is concerned, if one cannot afford to reside in Palo Alto or its surrounding communities, then buy a house somewhere else and commute...purchase an electric car to save on gas.

We have employees who commute to the bay area from Tracy & Stockton. They do not complain about not being able to pay $5M+ for a house. Instead they are grateful for a job and an affordable roof over their head.

People who feel they deserve to live in Palo Alto but cannot afford to are how do you say...full of horse's feathers?

Posted by george drysdale
a resident of Professorville
on Jan 23, 2020 at 10:39 am

Zhao Lin, thank you, at times I think I'm fighting this battle alone. I want the city council to do one thing: study the economic effects of the Buena Vista "affordable housing". Our new mayor is still young, ah campaign promises. Build to the highest and best use and send the greater taxes eastward. I've already in effect collapsed rent control in Milpitas.
Bouffant Newsome is already swinging in the wind for his universal rent control, didn't he graduate from high school? San Jose is next. Education the one thing the bastards can't steal from you.

Posted by Just Zone for Housing
a resident of Downtown North
on Jan 23, 2020 at 10:57 am

Or just zone parcels near transit to allow high-density housing with limited parking instead of making housing developers "beg" and negotiate for what they need to get a project to work. This is just sill and will create the same situation we had previously. The PC process is toxic. You get oddball developments in strange places with no regard to contextual or multimodal, transportation-driven planning (i.e. housing near transit).

If we don't zone for the dense housing we need around transit, the state will absolutely do it for us..... At this point, that is probably the best solution.

Posted by Carolyn
a resident of Downtown North
on Jan 23, 2020 at 10:58 am

Or just zone parcels near transit to allow high-density housing with limited parking instead of making housing developers "beg" and negotiate for what they need to get a project to work. This is just sill and will create the same situation we had previously. The PC process is toxic. You get oddball developments in strange places with no regard to contextual or multi-modal, transportation-driven planning (i.e. housing near transit).

If we don't zone for the dense housing we need around transit, the state will absolutely do it for us..... At this point, that is probably the best solution.

Posted by David
a resident of Downtown North
on Jan 23, 2020 at 1:28 pm

The so called planned community PC has a long history of being a complete failure in Palo Alto, unless you are a property developer. Numerous examples litter the town where PC zoning has resulted in literally millions of excess profit for the developer squarely at the expense of residents. The failing grocery in College Terrace currently in the news is a recent example of a required PC 'benefit' that was doomed to fail in order to get the zoning approval for the commercial space that surrounds it. I can't believe that this city council is so short sighted to be considering this decisive and clearly flawed zoning 'tool'. What do certain council members find so appealing about the PC process? If you want housing, zone for housing. If you want commercial space, zone for it. The obfuscated backroom deals inherent in a PC 'deal' are NOT the way to solve this problem.

Posted by Annette
a resident of College Terrace
on Jan 23, 2020 at 4:20 pm

Seems to me we need new minds on this problem. It would be foolish to think that those who pushed us into this messy corner, putting Palo Alto in the State's crosshairs, will suddenly shift gears and develop policy that will avoid the sort of State/Developer takeover that SB50 threatens. The old fox/hen house analogy comes to mind.

And for all his talk about being a housing advocate, our mayor helped create this knotty problem by promoting housing-unmitigated commercial development. How does building demand far in excess of what a city can deliver equate to housing advocacy?

I was alarmed a year or so ago when Fine referenced the "idolatry of local control" and alarmed again to read in his recent letter to Weiner that he thinks “too much engagement” is part of the problem. I’m not in denial about the public’s role in the “Palo Alto Process” but I am thankful for it when it is focused on bad policy that will only make problems worse.

Fine argues that when local governments will not solve a problem of regional or state concern, the state government should step in. Actually, this is when the public needs to step up and demand new thinking and solutions that will work.

Let’s get some new minds on this; if we don’t we are going to see more government in our lives and growth here at a rate that cannot be sustained.

Posted by It's the Demand Side, Stupid!
a resident of Another Palo Alto neighborhood
on Jan 23, 2020 at 7:19 pm

Remember "It's the economy, stupid!" on Clinton's desk?

It's the DEMAND SIDE, Stupid!

We can't seriously be talking about this until we have a plan for dealing with the demand side problem. We do not have infinite capacity for overdeveloping this area safely, in earthquake, fire, and drought country.

We must look at converting office space to housing. We must look at taxing companies over a certain size to the point of pain so they make plans to grow where they have space (not here) and stop distorting the costs here so much because of the inexhaustible demand.

Fine just wants to advantage the companies he's working for at the public's expense. He's not working for you as mayor, he's working for them and for the developers. The way he "misled" the voters (as the Fair elections people said about the deceptive way he handled the major developer contributions he got) was evidence enough, but the way he talks about the housing we need versus what he actually votes for (overdevelopment of luxury dense housing for his companies pushing out all the people he claims to want to help).

This area has never been easy to get housing in the last 50+ years. Even during recessions when there are way more vacancies, it hasn't been cheap relative to wages. Right now, the demand has pushed out so many of the people who would build things, I believe it doesn't pencil out for Sobrato to build anything at this time.

Posted by It's the Demand Side, Stupid!
a resident of Another Palo Alto neighborhood
on Jan 23, 2020 at 7:25 pm

Note: PC zoning, as described in the code, was never intended to be a way to wholesale bust zoning. It was originally intended to be a way to be pragmatic when there were inconsistencies across large parcels that could threaten projects that were largely within the zoning unnecessarily.

The fact that the Council began to use it to push for outrageously outsized plans was what caused residents to be upset, not the PC zoning itself. Well, and also because the public benefits never pan out.

Overdevelopment advocates like Fine are not taking anything important to citizens into account, like safety (when our own emergency czar has said that density we already have will cause loss of life in foreseeable disasters here), drought, pollution, walkable amenities on the South side of town (which they've turned into a hotel monoculture), local small businesses, etc etc.

WE MUST DEAL WITH THE DEMAND SIDE OF THE EQUATION. THE FOCUS SHOULD BE ON CONVERTING OFFICE SPACE TO HOUSING.

Posted by Overpopulation is the problem
a resident of Downtown North
on Jan 23, 2020 at 11:11 pm

Yet again, it is not a housing issue, it is an overproduction of jobs issue! Palo Alto has done a good job by stopping the building of more office space with the office cap. We are no longer part of the problem in the Bay Area. Now other cities like San Francisco, that are adding many thousands of jobs and few houses want other cities to fix there problems.

We need to say no. There should be a hard and fast law that no city can build more jobs unless they put the same number of housing units in their own city.

Further it is past time to evaluate the crisis in livability and the crisis to the environment caused by all these bodies in this area. It is miserable to drive here, the infrastructure is overcrowded and the pollution is awful. Cramming more people into market rate high-rises to make developers rich only helps the developer, no one else.

Time to use our collective brains and vote out mindless growthers like Fine, Tanaka and Cormack. Luckily Kniss will be termed out.

Posted by SB 50 Fine
a resident of College Terrace
on Jan 24, 2020 at 1:04 am

With the backing of powerful politicians such as Mayor Adrian Fine of Palo Alto [portion removed], SB 50 will surely be approved by the state senate next week. Then on to the ambitious politicians in the state assembly and to the Governor. From the law's start date, developers will have two years to put together land deals for higher-density housing across Palo Alto. Maybe some homes of cooperative politicians will be spared high-density neighboring developments.

Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jan 24, 2020 at 8:57 am

"Maybe some homes of cooperative politicians will be spared high-density neighboring developments."

Yup. They should have lost their dedicated parking spaces long ago instead if wasting OUR time and money preaching car-light" fairy tales which only help their developer buddies cram in more units to increase profitability while the cars flood our neighborhoods. The under-parked hotels are great examples of how ludicrous their claims are. Do they think all the hotel guests and hotel workers fly here on broomsticks?

Posted by NeilsonBuchanan
a resident of Downtown North
on Jan 24, 2020 at 2:15 pm

Just my observation.....there is a consensus in Sacramento, even among legislators' staff, that developers are riding on a big merry-go-around ready to lean out and grab golden rings which are slightly out of reach.

As the legislature offers the allure of bigger and bigger golden rings, then savvy developers are calculating the time value of waiting for better legislation removing control from local towns to Sacramento. This is a dicey game played by developers and financial backers who know first-mover advantage vs greater ROI from future round of new legislation.